Shenwan Hongyuan Group: Short-term market momentum still exists but the phase of year-end validation is approaching, the market may face adjustment pressure.

The research report of Shenwan Hongyuan Group stated that in the environment where trading games dominate the market, the market may temporarily not react to some changes in fundamentals and policies. However, games also need to respect the rules and go with the trend. In the market of trading games, the guiding significance of cost-effective indicators for short- to medium-term trends is enhanced. If the logic of a bull market cannot be maintained in one go, then the current market is in a historically low cost-effective area. While short-term market momentum still exists, as the year-end verification period approaches, the market may face adjustment pressure. 1. Mid-term outlook: Trump's trade is a rhinoceros. A-share profitability expectations turning point constitute a factor that continues to suppress risk appetite. The verification period of subsequent policy effects may see a major contradiction switch: positive policy attitudes, with space to support risk appetite relative strength between Trump's tariff impact and domestic policy hedging. The combination of the United States imposing tariffs "offensively" and China's financial hedging "defensively" makes it difficult to generate bullish expectations of a bull market level. Real optimism is awaiting a breakthrough point for active action. Short-term market trading games are evident in the A-share market, but they are not outside the constraints of general rules. The impact of the mid-term outlook on short-term market trends will only be delayed and not absent. Shenwan Hongyuan Group reiterates its mid-term outlook: the main contradiction in the current market is that the positive policy attitude has never been seen before, with a large policy space, and the development of the capital market is a priority, supporting market risk appetite. However, the verification period of subsequent policy effects may see a major contradiction switch. Trump's trade is a rhino, and trade frictions may involve repeated negotiations for terms. Moreover, Trump's trade has a significant potential impact on fundamentals, which may shift the demand rhythm from low to high in 25H1 and possibly fall again in 25H2. The supply growth rates in the upper and middle reaches of 25-26 years are expected to trend lower, but the supply growth rate in 25H2 is still relatively high compared to the demand growth rate. This means that the expectation of a turning point in A-share profitability in 25H2 may cause significant disturbance. Therefore, if the verification period of policy effects begins, the main contradiction in the market may switch to the relative impact of Trump's tariffs and domestic policy hedging. At that time, the importance of domestic policy attitudes will decrease, and the actual policy layout and implementation will be more important. Shenwan Hongyuan Group believes that whether it is the implementation of domestic policies (Central Economic Work Conference, next year's two sessions) or Trump's policy layout, it will open the verification period of policy effects and increase market resistance. In this regard, a more macroscopic consideration is that if the discussion is limited to the United States imposing tariffs "offensively" and China's financial support "defensively," then this combination lacks depth in long-term fundamental deduction and may find it difficult to generate bullish expectations of a bull market level. Real optimism may only be found in proactive action in the game between China and the United States. It can be noted that the export tax rebates of multiple industries are declining and future tax subsidy methods may shift from subsidizing overseas consumers to subsidizing domestic consumers. This fundamental change in policy thinking may be the source of long-term investment opportunities. 2. Trading games also have their rules: In the environment where trading games dominate the market, the market may temporarily not respond to some changes in fundamentals and policies. However, games also need to respect the rules and go with the trend. In the market of trading games, the guiding significance of cost-effective indicators for short- to medium-term trends is enhanced. If the logic of a bull market cannot be maintained in one go, then the current market is in a historically low cost-effective area. While short-term market momentum still exists, as the year-end policy layout period approaches, the market may face adjustment pressure. Trump's victory in the US election and the release of the NPC Standing Committee press conference confirming the domestic policy of "actively choosing to play after the hand" have kept the A-share market strong. In the environment where trading games dominate the market, the market may temporarily not reflect some changes in fundamentals and policies. However, trading games themselves also need to respect the rules and go with the trend. Trading games are most sensitive to profit-making effects. In the stage of pricing speculative funds, the guiding significance of cost-effective indicators for short- to medium-term trends is enhanced. It can be seen that the average holding period for all A-shares and the CSI 2000 has reached the lowest level since 2019. Historically, only 2007, 2009, and 2015 have seen lower average holding periods. Therefore, if the logic of a bull market cannot be maintained in one go, then the current market is in a historically low cost-effective area. Short-term market volatility has increased, reflecting that short-term disruptive factors have not been fully reflected, maintaining this state consumes additional long positions, and natural adjustments are healthy. The current degree of adjustment is still within the range of volatility. The market may still retain momentum in the short term, and before the end of the year policy layout period, there is still a window favorable for the fermentation of trading opportunities. But during the year-end period, both domestically and overseas are critical policy layout periods, and then the market's main contradiction may switch, and risk appetite may gradually decline. Maintaining the judgment that the 2025 spring market may be relatively weak. 3. The direction of mid-term structural recommendations remains unchanged: New energy (rapid relief of supply pressure), innovation and technology (turning point of the 2025 venture capital market, increase in opportunities for first- and second-tier linkage), Hong Kong Internet stocks (core assets with established fundamental turning points). The year-end market may be weak, stable capital market expectations may exert further force, and A500 may have excess returns at that time. The core idea of the mid-term structural recommendations remains the turning point in the 2025 economic outlook, focusing on: 1. New energy (the clearest direction for the relaxation of supply pressure by 2025), with the fastest supply clearance of new energy vehicle power batteries as the core, similar to other new energy sectors, and even wider diffusion into the manufacturing sector. This is not only a clue to the evolution of short-term market trends but also a clue to the verification of the supply-demand pattern turning point in the mid-term. 2. The scale of venture capital financing in 2025 is likely to bottom out and rebound. By the end of 2024 Q3, the primary venture capital market is still accelerating its clearance, with pricing of mergers and acquisitions in computers, media, pharmaceuticals, biotechnology, and advanced manufacturing at historically relatively low levels. In the short term, the rise of secondary stocks, the heat of primary markets is also rebounding, the number of merger and restructuring cases has been on the rise, and the turning point of innovation and technology is being verified. 3. Hong Kong Internet stocks are core assets where the dual turning point of policy and economy has already been realized, and the recommendation is maintained. The year-end market may be weak, but stable capital market expectations may exert further force, and there may be a window of opportunity for trading opportunities to ferment then. However, during the year-end period, both domestically and overseas are critical policy layout periods, and then the main contradiction in the market may switch, and risk appetite may gradually decline, maintaining the judgment that the 2025 spring market may be relatively weak.With the expected strength of the market, A500 may have excess returns at that time. In the short-term trading phase, the market is based on the "A500 weight - Shanghai and Shenzhen 300 weight" ratio, which fuels the growth of leading stocks. However, towards the end of the year and the beginning of the year, the more advantageous trading structures may be the "A500 weight - public fund heavy position weight" and the "A500 weight - recent ETF increased position structure".Risk warning: Overseas economic decline exceeds expectations, while domestic economic recovery falls short of expectations.